The present invention relates to automated investment planning, particularly to systems and methods which automatically generate financial transaction recommendations for modifying a client's current asset portfolio to reach as close as possible to a desired asset allocation and asset placement (i.e., preferred domain).
Personal investment planning is a complex process. Accordingly, many software products have been developed to assist individual investors, investment counselors and investment professionals in the process. Software products have been developed to select the appropriate asset allocation and portfolio of assets within each asset class. A properly managed investment portfolio must be periodically rebalanced either to maintain the investor's desired allocation or to modify the current allocation to a different allocation if the needs of the investor changes. In the rebalancing process, specific assets are bought and/or sold.
The rebalancing process is conceptually simple. For example, if an investor's portfolio becomes too heavily weighted in equities and not sufficiently weighted in bonds for the desired asset allocation, then some stock assets are sold and some bond assets are purchased. However, the problem is deciding which stock assets to sell and which bond assets to purchase. Ideally, the investor would like to rebalance the portfolio without incurring any tax implications or transaction costs. However, selling stock assets almost always has tax implications, and any buying and selling of assets incurs transaction costs which immediately decrease the total assets of the investor. Thus, it is not necessarily beneficial to fully reach the desired asset allocation if doing so would incur excessive transaction costs and/or significant negative tax implications.
The conventional process of evaluating an investor's asset portfolio for rebalancing is a very labor intensive process even when assisted by a software program. Furthermore, even an experienced investment counselor cannot mentally sort through all of the factors to be considered in the rebalancing process so as to identify the best assets to buy and sell.
Despite the sophistication of conventional investment planning tools, there is still an unmet need for a rebalancing tool which automatically generates transaction recommendations that take into account an investor's desired asset allocation, as well as the investor's preferred domain, while minimizing tax implications and transaction costs. The present invention fulfills such a need.